Influence of corruption and COVID-19 on economic growth in Latin America

Abstract

During the first two decades of the 21st century, Latin America, within the context of a slowdown in per capita gross domestic product growth, experienced, in a relatively opposite sense, two phenomena of great significance: the increase in corruption and the COVID-19 pandemic. In this scenario, the level and evolution of these variables showed great regional heterogeneity between countries. Therefore, the main objective of this research is to determine the influence of corruption on the economic growth of Latin American countries; and to specify whether there is a unidirectional or bidirectional causal relationship between the two. It should be noted that part of this objective is also to determine the impact of COVID-19 on said economic growth. To achieve the stated objectives, with panel data information, econometric regressions were carried out with grouped OLS models, fixed, random and mixed effects. Furthermore, the Granger test was used to specify the type of causality between corruption and growth. According to the result obtained by the random effects model, which was chosen as the most appropriate model, corruption negatively affected the economic growth process in Latin America, such that, for each point of increase in the corruption index, there was approximately a 2% drop in the gross domestic product per capita. On the other hand, the Granger test indicated a strong causality from corruption to economic growth and a slight causality from economic growth to corruption, so that the relationship between these two variables is bidirectional. Likewise, the existence of an inverse relationship between the magnitude of COVID-19 and economic growth was determined, thus, the Latin American countries that experienced the greatest drop in their production level were those affected by the COVID-19 pandemic with greater intensity.